This Budget was really about a quick way of increasing the tax revenues, with the main emphasis being on ways to increase income tax and the various levies. Even though the Minister specifically mentioned measures to help stimulate the economy, these were few and far between.
The key announcement from a business perspective is the retention of the 12.5% corporation tax rate as a key aspect of our inward investment strategy. There is no limit to the number of times this announcement should be made. The 12.5% rate is the cornerstone of Ireland's attractiveness for inward investment. Investors in Ireland and those considering investing in Ireland require reassurance and guarantees. This announcement offers reassurance and provides a guarantee and is to be welcomed.
CAPITAL ALLOWANCES
Given with one hand ...
A scheme of tax relief for the acquisition of intangible assets, including Intellectual Property is being introduced as a means of supporting the Smart Economy.
The current reliefs for investment in intangible assets are a hotchpotch of measures which allow relief for certain intangibles while disallowing relief for others. Currently, there are different capital allowances regimes available for software and patents; there are also different reliefs available for know-how, scientific research, and a tax credit system for R&D spend. There is no relief available for goodwill and other IP assets such as trademarks, brands.
In the context of promoting the knowledge based economy and making Ireland attractive for IP intensive inward investors, ICAI has called for an overhauling of this collection of reliefs in such a way as to provide real incentive, expansion of scope and consistency of treatment. The Minister's announcement today is to be welcomed.
However, it will be crucial that the underlying details are investor-friendly. Too often, Ireland introduces some very worthwhile measures to encourage foreign direct investment but the complexities make them almost impossible to sell.
The details of the scheme are being worked on, and will be published in the Finance Bill. It is anticipated that this measure will help to attract high quality employment to this economy.
... and taken away with the other ...
On the other hand, property-related accelerated capital allowance schemes in the Health Sector are being terminated. This scheme covers private hospitals, registered nursing homes, convalescent homes and associated residential units as well as mental health centres. Transitional arrangements will be put in place for projects that are at an advanced stage of development. The Finance Bill will contain further details on this measure. It should be noted that schemes for palliative care units and childcare facilities will remain in place.
While it is recognised that reliefs have a certain life-span, the Minister's appreciation of the importance of reliefs was noted when he stated "It is the intention of the Government to continue to remove unnecessary [our emphasis, not the Minister's] reliefs and shelters from the tax system in successive budgets."
CAPITAL GAINS TAX, INCOME TAX AND CORPORATION TAX
Rate of Capital Gains Tax
The capital gains tax rate is being increased from 22% to 25% in respect of disposals made from midnight on 7 April 2009.
Income and losses from dealing in residential development land
(a) The special 20% rate applied to the trading profits from dealing in or developing residential development land is being abolished. The income will be charged at the person's relevant marginal rates of income tax or the 25% rate of corporation tax.
This change will apply as regards Income Tax for the year of assessment 2009 and subsequent years and as regards Corporation Tax for accounting periods ending on or after 1 January 2009 (with accounting periods straddling that date being deemed for this purpose to be separate accounting periods).
(b) Where trading losses have been incurred from dealing in or developing residential development land in circumstances where, if trading profits had been made, they would have been eligible to be taxed at 20%, and a claim to use those losses has not been made to and received by the Revenue Commissioners before 7 April 2009, the losses from today will generally only be relievable (on a value basis) up to a maximum of 20%. Where any such loss is a terminal loss, the restriction will be implemented by "ring-fencing" the loss.
Full details of both changes will be contained in the Finance Bill.
STAMP DUTY
Stamp Duty "Trade-in" scheme
This measure involves the establishment of a Stamp Duty "trade-in" scheme, under which no stamp duty is payable by a person who accepts a traded-in property in exchange or part exchange for a new house/apartment.
Stamp Duty will apply when the person subsequently sells on the 'swapped'/traded-in property.
The measure is being introduced to address the overhang of unsold properties.
Full details of this initiative will be contained in the forthcoming Finance Bill and it is envisaged that the scheme will apply from the date of publication of the Finance Bill to 31 December 2010.
Life Assurance Policies
A new levy on life assurance is being introduced at the rate of 1% on premiums. This new levy will apply to premiums received by an insurer on or after 1 June 2009.
Non-Life Insurance Policies - Change in Rate of Tax
The current non-life insurance levy of 2% is being increased by 1%. The new rate of 3% will apply to renewals and offers of insurance issued by an insurer on and from midnight on 7 April 2009 where premiums are received by the insurer on or after 1 June 2009.
CONCLUSION
It is recognised that this Budget was a form of emergency to bridge the gap in the public finances. It was always going to be about increasing income tax (in its various forms and guises). On initial reading of the Budget documentation, the effect on businesses would appear to be minimal. However, as with the increase in the standard VAT rate by 0.5% in the October Budget and the subsequent fall-out, only time will tell if the Minister has got it right or whether he has gone so far in his measures as for them to be a disincentive to business and hence the economy.